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On 1 July 2011, Kookaburra Ltd acquired all the shares of Magpie Ltd on a cum divbasis. At this date, the equity and liability sections of Magpie Ltd.’s statement of financial position showed the following balances:

                 

                  Share Capital (60 000 shares)            $60 000                                

                  General Reserve                                 $30 000

                  Retained Earnings                              $21 000

                  Option Reserve                                    $6 000

                  Dividend payable                                 $5 000                                

 

The dividend payable at acquisition date was subsequently paid in September 2011.

 

At acquisition date, all the identifiable assets and liabilities of Magpie Ltd were recorded at amounts equal to fair value except for:

                                                                          Carrying                          Fair

                                                                            Amount                       Value

          Inventory                                                    $50 000                    $56 000

          Machinery (cost $17 000)                             15 000                      16 000

          Equipment (cost $30 000)                            24 000                      32 000

          Land                                                             18 480                      24 480

          Manufacturing Software (cost $36 000)      28 800                      31 800

 

The manufacturing software is a custom-designed programme used by Magpie Ltd to run its robotic manufacturing plant.  It has a remaining useful life of four years.

 

Additionally, Magpie Ltd owns, but has not recognised, the internally generated brand name “Handytrax”.  The fair value of the brand, which is regarded as having an indefinite life, is $30 000 at 1 July 2011.

 

The inventory on hand in Magpie Ltd at 1 July 2011 was sold during the following 12 months. The machinery, which had a further five-year life on acquisition date, was sold on 1 January 2014. The land on hand at acquisition date was sold on 1 August 2013. The equipment was estimated to have a further 8-year life. At 1 July 2011, Magpie Ltd had not recorded any goodwill.  On 30 June 2013, half of the goodwill acquired was written off as a result of an impairment test.

 

 

Any adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation. Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold, fully consumed or completely impaired.

 

A bonus dividend, of six [6] ordinary shares for every sixty [60] ordinary shares held, was paid by Magpie Ltd in January 2012 out of the Option Reserve existing at acquisition date.

 

On 28 June 2014, Magpie Ltd transferred $15 000 from the General Reserve to Retained Earnings.

 

The release onto the market, in November 2013, of a new product as direct competition for the ‘Handytrax” product manufactured by Magpie Ltd indicated that both the brand and the software programme may be impaired.  Subsequent testing resulted in impairment losses of $25 000 for the brand to be recorded on consolidation and the complete write-off on 30 June 2014 of the remaining balance of the Manufacturing Software asset.

 

Additional information:

(a)                On 1 July 2013, Magpie Ltd has on hand inventory worth $25 000 transferred from Kookaburra Ltd in June 2013. The inventory had previously cost Kookaburra Ltd $22 000.  By 30 June 2014, Magpie Ltd had sold the entire inventory to external parties.

(b)               On 1 January 2014, Kookaburra Ltd acquired $36 000 worth of inventory from Magpie Ltd. The inventory had previously cost Magpie Ltd $29 500. By 30 June 2014, Kookaburra Ltd had sold 65% of the transferred inventory to external entities.      

(c)                On 1 March 2013, Magpie Ltd sold equipment to Kookaburra Ltd for $18,000. This had originally cost Magpie Ltd $38 000 and had a carrying amount at the time of sale of $22 000. Both entities charge depreciation at a rate of 20% p.a. straight-line

(d)               Kookaburra Ltd sold an item of inventory to Magpie Ltd on 1 April 2014 for use as machinery. This item cost Kookaburra Ltd $3 000 and was sold to Magpie Ltd for $6 000. Magpie Ltd depreciated the item at 25% p. a. straight-line.

(e)                Magpie Ltd sold an item of machinery to Kookaburra Ltd on 1 May 2014 for $9 000.  The machinery had a carrying amount of $8 000 at the date of sale and was classified as inventory by Kookaburra Ltd.  The item is still on hand at 30 June 2014.

(f)                Magpie Ltd rents a warehouse from Kookaburra for an annual rent of  $12,000.

(g)               On 1 June 2014 both companies adopted the revaluation model to account for the asset - land.  Consequently, on 30 June 2014, land was revalued up by $10,000 (Kookaburra Ltd) and by $2 000 (Magpie Ltd).

(h)               The tax rate is 30%.

(i)                 Round all figures to the nearest dollar.

 

 

 

 

 

 

 

 

 

 

 

 

On 30 June 2014 the trial balances of Kookaburra Ltd and Magpie Ltd were as follows:

                                                                   Kookaburra Ltd                Magpie Ltd

         Shares in Magpie Ltd                                      $175 000                                  0

         Cash                                                                    30 000                         25 000

         Receivables                                                         41 580                         25 000

         Inventory                                                            31 450                         20 000

         Other current assets                                              8 620                           3 100

         Deferred tax assets                                             16 200                           7 400

         Machinery                                                         328 000                       122 000

         Land                                                                  110 000                         58 000

         Equipment                                                           34 000                         37 300

         Advance to Magpie Ltd                                     10 000                                  0            Cost of sales    365 000         203 500

         Depreciation and Amortisation Expense            29 600                         44 600

         Impairment Losses                                                       0                           7 200

         Other expenses                                                    22 000                         17 000

         Income tax expense                                            37 200                         32 000

         Dividend paid                                                       4 000                           2 000

         Dividend declared                                              10 000                           3 000

                                                                              $ 1 252 650                     $ 607 100

 

         Share capital                                                      270 000                         66 000

         General Reserve                                                  41 000                         15 000

         Asset Revaluation Reserve                                 10 000                           2 000

         Retained earnings (1/7/13)                                  63 850                         17 000

         Debentures (Mature on 31/12/17)                       60 000                                   -

         Dividend Payable                                               10 000                           3 000

         Other Payables                                                    34 800                         10 100

         Current Tax Liabilities                                          8 000                         12 500

         Deferred Tax Liability                                        26 700                         19 800

         Advance from Kookaburra Ltd                                   0                         10 000

         Employee entitlements                                        22 000                         17 500

         Sales                                                                  585 000                       295 000

         Gain on sale of non-current assets                      16 000                           7 000

         Other income                                                      23 000                         22 000

         Transfer from general reserve                               9 000                         15 000

         Accumulated depreciation – Machinery             57 000                         76 000

         Accumulated depreciation – Equipment            16 300                         19 200

                                                                              $ 1 252 650                     $ 607 100

 

 

 

 

 

 

 

 

 

Prepare the following:

  1. Acquisition analysis at 1 July 2011.
  2. The BCVR & pre-acquisition worksheet journal entries ONLY at 30 June 2013.
  3. The BCVR, pre-acquisition and intra-group transaction worksheet journal entries at 30 June 2014.
  4. The consolidation worksheet for Kookaburra Ltd at 30 June 2014.
  5. The consolidated financial statements for Kookaburra Ltd at 30 June 2014.

 

Marking Guide

This assignment is worth 20% of the total assessment. Marks will be apportioned as follows:

  1. Acquisition analysis at 1 July 2011. ( 6 marks)
  2. The BCVR & pre-acquisition worksheet journal entries at 30 June 2013. (24 Marks)
  3. The consolidation worksheet journal entries at 30 June 2014. (60 Marks)
  4. The consolidation worksheet at 30 June 2014. (5 marks)
  5. The consolidated financial statements at 30 June 2014. (5 marks)

 

Parts 1 and 2:

The acquisition analysis and the journal entries will marked based solely on their accuracy. In other words, you have to get both the account name and amount correct to get your mark. For the adjusting entries, consequential marking will be applied to the journal entries if the acquisition analysis is incorrect.

 

Parts 3 and 4:

For both the consolidation worksheet and the consolidated financial statements, the tutor will grade you out of 5 based on purely on format and completeness of each of these items.  Use the Excel Spreadsheet provided, do not reformat the worksheet and add only additional asset, liability and equity accounts as required.

 

Assignment Submission

You are required to work in pairswith partners from the same tutorial class. No cross tutorial pairs are permitted. A 10% penalty will apply for any assignment completed on an individual basis.

 

You are required to submit your assignment on or before 12 noon, 27 October 2014.  Late assignments will attract a penalty.

 

 Each group will need to submit a hard copy with appropriate signed coversheet (download from Blackboard) to the School of Accounting Office ANDsubmit an electronic copy via the assignment submission link in Blackboardlocated under the assessments tab.

 

 

Note: Failure to submit a copy of your assignment in Blackboard may mean that your assignment will not be marked.



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